Why You Should Ditch Cell Phone Contracts and Subsidie...

Why You Should Ditch Cell Phone Contracts and Subsidies

Over the last six years, cell phones have gone from a small part of our lives to must-have companions for everyone. Our devices no longer serve as just an away-from-home line or a constantly-buzzing text messenger, they’re navigation systems, game consoles, personal assistants, and much more.

But the extra features have also led to increasing prices — for both phones and service. Major carriers provide a simple route to the latest and greatest phones with service, but require an expensive two-year contract. Here’s a look at why you need to ditch cell phone contracts and prevent overpaying through subsidized phones.

You’re Paying Too Much

It’s fair to say that if you’re under a contract through one of the major postpaid carriers — Verizon, AT&T, or Sprint — you’re paying too much for service. Earlier this year, we showed you the real price of a two-year contract when Straight Talk, one of the largest prepaid providers in the U.S., began selling the iPhone 5. Its iPhone 5 is powered by Verizon’s network, yet service was less than half the cost of Verizon’s lowest contract plan ($45 vs. $100 per month).

The downside of the low service cost is having to pay for the entire device upfront — a whopping $650. That extra $450 will eventually find its way to Verizon, though. Within 9 months, you’ll have paid that back to them and still have 15 months left on your contract.

T-Mobile has made an effort to distance itself from the other carriers by making all of its service plans no-contract; however, you’ll still be on the hook for a separate monthly bill if you decide to buy a device from them. It provides some great savings and allows you to avoid the high upfront cost of the latest smartphones, but also keeps you tied to T-Mobile until you pay off the device. Luckily, T-Mobile is selling most phones for less than even the manufacturers and allows you to pay off your device at any time.

By going no-contract, you’re not just saving $1000 or more over the course of two years, you’re taking control of where you take your business.

You’re Limiting Your Options

Most prepaid providers are powered by the major carriers — the main reason to switch from postpaid to prepaid. In some cases, switching means giving up access to LTE and data roaming, but there’s always a compromise when buying a discounted service.

For the most part, however, your service should be the same as it was under your particular carrier. And if one provider is not meeting your expectations, you can easily switch to another without worrying about early termination fees.

When you do your smartphone shopping through a carrier website or in-person at a shop, you’re limited to the devices they happen to carry. For those wanting the latest iPhone or high-end Android phone, that’s not going to matter, but there are plenty of great devices that you may not be exposed to when dealing with carrier contract plans.

Last year’s Google Nexus 4 is a prime example of this. It was a carrier-unlocked, premium Android phone sold directly from the Google Play Store for as low as $300. (Similarly featured phones were going for $600 at the time. And while the carriers did get a hold of it later, each marked the price up dramatically.)

Going Unlocked and Prepaid

Once you’ve got an end date to your current carrier contract, you can start shopping for prepaid service and perhaps a new smartphone. The first thing you’ll want to do is find out which carrier offers the best coverage in your area. (Travelers will likely find that Verizon has the best nationwide coverage.) For researching this, CellReception and OpenSignal are great resources; personal testimonies from neighbors and co-workers are also a great way to find the best carrier for you.

From there, you can begin looking up prepaid providers that piggyback on your chosen carrier. If your area has great Sprint or T-Mobile service, you’ll likely find a lot more options than with AT&T or Verizon. Here’s a list of some of the popular prepaid providers (sorted by carrier) to get you started:

Sprint

Boost Mobile — Offers a $55 plan with unlimited talk and text, but limits its “unlimited” data to just 2.5 GB of 4G. Loyal customers can reduce their bill $5 for every six on-time payments they make, all the way down to $40/month. (Owned by Sprint)

T-Mobile

GoSmart Mobile — T-Mobile’s offbrand prepaid service offers a $45/month plan with unlimited talk and text with 5 GB of 3G data. You can still use 2G after using the allotted 3G, but it’ll likely be too slow for any real usage.

Verizon

Straight Talk — If you can manage to get your phone activated, you can access Verizon’s network through Straight Talk’s $45/month unlimited plan. (Beware of the random data limits.)

Verizon Prepaid — The company’s official prepaid service has upped its $60 smartphone plan‘s data allowance to 2 GB, making it a decent value with unlimited talk and text.

When you finally settle on a prepaid provider, you might want to get a new phone. After all, you’ve spent the past two years tied to one device. But now you’ve got the freedom to pick your phone from any outlet. One of the coolest services for buying and selling new and used phones is Swappa. Its marketplace has phones categorized by carrier compatibility and has a great verification process that makes sure you can activate your new phone on the specified network and requires users to upload photos of the device they’re selling.

Note: AT&T and T-Mobile are GSM carriers, while Sprint and Verizon are CDMA. The two are very different types of mobile networks. An unlocked GSM phone may work on both AT&T and T-Mobile, but a Verizon phone may not necessarily work on Sprint (and vice-versa). Keep this in mind when making a used smartphone purchase.

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